Economy

National Income

In the current format of the IBPS PO, the general awareness section has become very important. One of the topics that are asked frequently is national income. This section is of importance while preparing for the IBPS PO exams. That is why we have divided this section into three different parts. Today, we are just going to discuss what is national income and the variety of determinants of national income in India.

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What is National Income?

what is national income

We often hear the GDP in India. The national income of India is the sum total of income everyone earns in India. GDP, GNP are also parts of this national income.

GDP is the gross domestic products while GNP is a gross national product. Further, the savings rate and investment in the economy are the determinantal factors in the national income of India.

For a nation, the value of the final goods and services,  it produces in terms of money for the residents living in the country is the national income.

So, what is national income? It is generally for that particular fiscal year or financial year. In India, this financial year means the year from April 1st to March 31st for the next year. Thus, the formula to calculate national income is,

N.I. = C + I + G + (X -M)

Here, C stands for consumption, I stands for total investment expenditure, G stands for the expenditure done by the government, and X and M stand for export and import respectively.

X and M are interchangeable depending upon whether the trades are trade surplus or trade deficit.

To determine the estimates of national income, there are three methods:

  • Product or production method
  • Income method
  • Expenditure method

Learn more about Methods of Measuring National Income here in detail.

Factors of National Income

As discussed above, there are factors which determine the national income of a country. Below are the details of these factors:

GDP (Gross domestic product)

The final products within the boundaries of India within that specific period of time are in the GDP of India. Further, the effect of inflation on these products is also calculated.

GDP includes government expenditures, consumption, exports, imports, and investment of India.

For example, if Honda decides to manufacture it’s parted in India than that will go into the GDP of India. But the revenues got through the sales are included in the GDP of Japan.

GNP (Gross national product)

GNP of the country is measured by the income which is collected due to the various factors of production that are owned by the residents or the citizens of India.

The GNP of India is calculated by adding the net inflow coming from the abroad countries to the GDP of India while subtracting net outflow to the foreign countries from India.

As per the previous example, if Honda is an Indian company and it is selling it’s parted in other countries than that revenue become the GNP for India.

Consumption and Investment expenditure

The money spent on durable as well as nondurable goods in India is included in the consumption expenditure. The durable items are the items which are expected to last more than 3 years while nondurable items include clothing and foods. Services are also included in this section.

Investment expenditures include the spending on business inventories and residential and non-residential investment. Nonresidential includes spending on various equipment and plants. While residential includes spending on multi-family homes and single-family homes.

History and Present of National Income

Before independence, Dadabhai Naoroji is considered as the first person who calculated the national income of India. While, VKRV Rao divided the economy into sectors, corporate sectors, and agriculture sectors.

After independence, a committee called the national income committee was formed. It was set-up in 1949, and its first chairman was Prof. P.C. Mahalanobis.

Practice Questions

Q. In India, the financial year is  from:

A. March 1st to February 28th

B. January 1st to December 31st

C. March 1st to April 30th

D. April 1st to March 31st

Answer: D. April 1st to March 31st

Q. Methods to calculate national income are:

A. Production method

B. Income method

C. Expenditure method

D. All of the method

Answer: D. All of the method

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